Hongkong Land Pre-Close Meeting Highlights Challenging First Half

Despite the challenging operating environment in the first half of 2022, Hongkong Land noted in its pre-close meeting that its investment properties are performing well. This is within our expectation, as we believe the narrow-moat-rated landlord’s investment property portfolio is high-quality; and in line with previous downturns, occupancy level remains high with with downside limited to lower rents. Our fair value estimate of USD 7.40 per share is unchanged and we believe the landlord is undervalued. A reopening of domestic and international borders in Hong Kong remains a key catalyst for the real estate sector there. Rising COVID-19 cases in Hong Kong saw retail-sensitive property names such as Link REIT and Wharf REIC underperforming in recent weeks. Our preference is unchanged and we believe the retail-sensitive property landlords to benefit initially from border reopening. The impact on office rent and stock performance for the office landlords is likely to lag.